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Tuesday, July 5, 2016

Brexit and its impact on Immigration in the UK

In the previous article we looked at
one of the biggest contributors to the Brexit vote by Brits, the PublicFinance. In this article, we are going to look at the impact of Brexit on
Immigration.

First, we will look at the
contribution of European Union membership to Britain’s labor force. And then,
we consider the impact of Brexit on immigration and the likely economic
implications of these changes.

Immigrants and the British Labor
Force

As with any strong economy, the UK
has been one of the hot beds that have been attracting immigrants from all
across the globe for decades. With the UK allowing free entry into the country
and eligibility to work for citizens of EU member states, the net migration
into the UK has risen to significant levels. An average of 100,000 or more
people have been migrating into the UK every year since the early 2000’s and
after the economic crisis in 2008, the number has been steadily rising with
last year (2015) seeing an influx of over 180,000 people. Most of these come to
the UK in search of a Job and a better life.

This influx of manpower has been
supporting the economy’s ability to grow without pushing up wage growth and
inflation, keeping interest rates lower for longer.

The impact of
Brexit on immigration

With immigrants from poorer EU
nations being one of the big determining factors in favor of the Brexit
referendum, it would be logical to assume that the UK would have to tighten its
immigration policies to appease its citizens.

However, it is completely possible
that the UK’s immigration policy may not change substantially. You may be
wondering why isn’t it?

As I mentioned in my first article on
Brexit – this immigration situation is like the chicken and egg situation.

If UK wants to retain full access to
the single market, it may have to keep the free movement of labour between the
United Kingdom and the EU. EU Leaders have already made it clear that if the UK
wants unrestricted access to the European Market, they cannot restrict the
movement of EU Residents into the British job market. This kind of agreement
between the UK and EU could potentially make the Brits unhappy so the UK will
probably try to work out a deal of sorts which would be in the middle.

Nevertheless, the existing EU
migrants who are already in Britain will most likely be given permissions to
stay, just like the Brits who are living in EU nations. Predicting restrictions
in entering the UK once the new immigration policy is signed, the UK labor
market could see a near-term spike in incoming migrants. Emigration out of
Britain could fall alongside a rise in immigration, perhaps leaving net
migration little changed or even higher in the short term.

In the medium term, net migration
from European Union countries would almost certainly fall if Britain was
outside the single market, reducing the growth rate of the British labor force
(of course, the extent of the fall would obviously depend on the new policy
signed between UK and EU). This may lead to upward pressure on wages and
inflation, benefiting some workers but to the detriment of some employers.

Most importantly, the government
would gain the ability to implement a more robust migration policy, with
criteria probably set according to people’s skills and professions, rather than
where they come from. As a result, the quality of migrant labor could rise,
boosting Britain’s productivity performance and plugging labor shortages in specific
sectors.

Migration policy is not the only way
in which Brexit would impact the labor market. The UK wouldn't have to
implement some of the EUs restrictive regulations like the Agency Workers’
Directive, which gives temporary workers the rights of full-time workers. This
boost to the overall flexibility of the labor market could offset some of the extra
cost to firms from lower migration.

Some Last Words

Based on the look of things, the Brexit most likely WILL NOT
stop migrant workforce from entering the UK because it would have much larger
implications on its economy. However, the UK could try to restrict the number
of people coming in, especially the low skilled workers category and move
towards a system that attracts highly skilled workers (both from and outside
EU).

This will have a short-term impact on industries that use
low-skill/low-wage workers heavily ex: Agriculture but other industries that are
waiting on skilled labor could benefit.

Lets see how the Brits shape their immigration policy.

Disclaimer: All views presented in this article are those of the Author and are not endorsed by anyone. While every effort has been made to ensure that the data quoted and used in this article is reliable, there is no guarantee that it is correct, and the Author accepts no liability whatsoever in respect of any errors or omissions. This article is only economic research and is not intended to constitute investment advice, nor to solicit dealing in securities or investments.

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